What Assets Pass Under My Will?

cassandra f. ceronThe foundation of most Georgia estate plans is a Will. Your Will is the legal document that dictates how your probate assets are distributed upon your death. But what are your probate assets? The easiest way to answer this question is to first define non-probate assets.

Non-probate assets are assets that pass outside of the probate estate to a named beneficiary (or beneficiaries) and independently of your Will. These are assets that pass by operation of law or under the terms of a contract.

Read more

ESTATE TAX REPEAL? LET’S KEEP PLANNING!

michael w. hoffmanDonald Trump’s surprise election gives us a tremendous amount of hope that the federal estate tax might finally be repealed. This concept runs in the face of candidate Clinton’s proposal to reduce the estate and gift tax exemption amounts and increase the tax rates from 40% to 65%.

While we do not want to celebrate too early, a critical message is that estate planning should continue with fervor! The Donald Trump phenomenon, which results in a Republican Presidency and a Republican Congress, gives us a great deal of confidence that tax reform will be among the items addressed early in Trump’s administration. Tax reform could and should include the repeal of the federal estate and gift taxes, and the elimination of the generation skipping transfer tax that has been hanging over our heads since 1976.

However, this will take some time, and the reality is that the U.S. still has huge deficits that must be serviced with tax revenue. Granted, the percentage of the federal revenue coming from death taxes is minimal, but there is also the argument that the tax on the transfer of wealth is “fair” in a system that allowed the accumulation of such wealth. This theory is combined with the tempering affect that the death tax has on the growth of family dynasty wealth (taking from the rich to provide for the poor).

It is likely that the current federal estate and gift tax laws will be replaced by a system more popular in other parts of the world, such as the capital gains calculation that takes place in Canada, Great Britain and other western civilizations. In those countries, at death, the difference between the tax basis of property and its fair market value will be subject to a tax similar to the capital gains tax that would have occurred had the decedent sold the appreciated assets. This accomplishes the practical role of allowing tax basis to be stepped up to fair market value at the death of an owner, and replaces the estate and gift tax revenue with a fair method of taxing growth as it is done in the income tax arena. Of course, there will have to be exemptions and exceptions made for family farms and businesses so these types of assets would not have to be leveraged or sold in order to pay Uncle Sam. All of these details, and many more, will have to be worked out by Congress and the U.S. Treasury Department (IRS).

In the meantime, it appears that some of the more popular techniques that we have been implementing over the last 20 or so years will become even more popular. The use of trusts has long been an important aspect of estate planning. Trusts can own property outside of a taxable estate, trusts can allow an orderly transition of control through the naming and choice of trustees, trusts can protect property from creditors and divorce, trusts avoid probate, and trusts provide significant income tax savings flexibility for current and future beneficiaries.

An important trust that we use in estate planning is the Family Trust, where parents set up trusts for their kids while they are alive, as opposed to waiting until both parents are deceased, and begin funding those trusts with assets by way of gift and otherwise, to remove property from the parents’ taxable estates.

One type of Family Trust that we often use is to make the trust a grantor trust for federal income tax purposes. That means for income tax purposes the IRS ignores the existence of the trust and all the taxable income and deductions associated with the Family Trust continue to be reported on the grantor’s individual income tax return. In our practice, we refer to these Family Trusts as “Defective Grantor Trusts”, or DGTs.

One of the features that allows a trust to be a grantor trust during the grantor’s lifetime is the ability to substitute property in the trust with other property from the grantor. This has been a popular benefit of using DGTs because the trust can hold appreciating assets, removing the appreciation from the grantor’s estate, but those appreciated assets can be swapped for cash or other assets, allowing the low-basis, highly-appreciated assets to come back into the grantor’s estate before death, in order to allow a step-up in tax basis at death for income tax purposes. This has always been kind of “have your cake and eat it too”, removing appreciating assets out of your estate, but retaining the ability to get those assets back in order to achieve an increase in tax basis at death. So, one of the things that we have tried to accomplish with our estate planning clients is to assist them in monitoring the assets in their Family Trusts, to determine if and when it would be desirable to substitute those highly appreciated assets for other assets out of our clients’ taxable estates. Of course, timing is everything, and there is always the risk that the substitution might not occur timely, but at least our clients have retained that flexibility.

Now, with the chance of repeal of our federal estate tax, the strategy with these same grantor trusts might change. In other words, since only appreciated assets would be subject to a capital gains tax at death, it may become more important than ever to remove these appreciated assets from the estate, put them in a grantor trust, and leave liquid, high basis assets in the parents’ taxable estates. Then, if the next President and/or Congress were to reinstate a federal estate tax, we can easily shift strategy and look to exercise the substitution power that exists with the DGTs.

Remember that we still have the evil overhang of the proposed 2704 regulations (see prior articles) which will eliminate much of the discounting that we have enjoyed for valuation purposes when gifting or selling hard to value assets to Family Trusts. These proposed rules will become effective, according to the IRS, 30 days after they become final. While we don’t know when these proposed regs will become final, it does take typically 12 to 18 months for these regulation projects to become completed. The regs were proposed in early August, so we are still “under the gun” for those clients who have situations that warrant this type of estate planning.

So, let’s be happy with the potential repeal of the estate tax but be realistic in what that means. If anything, as new rules evolve, we should be focusing on flexible estate planning now, more than ever, as future tax reform will create new tax regimes. For instance, if the new tax rules no longer encompass the concept of a $5,500,000 exemption per person, will all that exemption that was not used before the estate tax is repealed be lost forever? So, while President-Elect Trump goes about changing our tax system to make us more competitive in the world, and he is ”draining the swamp”, let us pay attention to details and reap the benefits of continuous planning.

For more information about this or any other estate planning topic, please contact us directly at 404-255-7400 or email us at info@hoffmanestatelaw.com.

No Kids? An Estate Plan is Still Important

hoffmankimcolorThere are certain times in life where the need for a proper estate plan is so clear, its like the wail of a newborn at 3AM.  How will that child be cared for if something happened to you?

But what if you do not have children?  The answer may not be as clear, but it is no less important.

If you do not specify in a proper Will or Trust to whom and how your want your assets disposed of at your death, the State will do so for you.  Generally, the State will find your closest heirs and divide your assets among them.  Sound ok since that’s where you would send your assets anyway?  Then you should know that intestate (without a will) probate proceedings tend to be much more costly and time consuming than proceedings with a properly drafted Will.  The urgency is even greater when you do not want your brother and his kids to inherit your assets.  To direct otherwise requires an estate plan.

An estate plan is more than just a will though.  A Healthcare Directive and a well-drafted Power of Attorney are key components to a basic estate plan.  A Healthcare Directive names someone to make medical decisions for you in the event you cannot do so, it grants such person authorization to access your medical records under HIPAA, and it may include preferences for end of life care in the event of a terminal condition.  These directives make it much easier on loved ones to properly care for you in the event you can no longer communicate your medical preferences.  Anyone over the age of 18 needs a Healthcare Directive.  A parent no longer has automatic access to the medical records of their children after age 18, but so often an 18 year old is still under the care (financially, and otherwise) of their parent.

The last leg of the stool is a properly drafted General Power of Attorney.  These may be drafted to be “springing”; so that they spring into effect only upon incapacity.  Then, in the event of incapacity, you have previously named a trusted individual to manage your financial and personal affairs.  Should incapacity occur without a Power of Attorney in place, a court may appoint a Guardian or Conservator after an administrative process.

These Powers of Attorney and Healthcare Directives are essential documents, even for those individuals who do not feel a will is necessary because they have no children.  We, of course, still disagree with that notion, and we will be glad to discuss how each of these components of a good estate plan fit your specific needs.

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

 

Revocable Living Trust

hoffmankimcolorAs Georgia based attorneys, we are very comfortable with the Will-based Estate plan.  Georgia probate courts are friendly and easy to work with, and Georgia law allows a Testator to waive the requirements of a bond, inventory and reporting to the court.  We cannot overlook the importance of a Revocable Living Trust, however, for those clients with out of state assets or where avoidance of probate is simply a desirable goal.

A Revocable Living Trust is, as its name implies, revocable or amendable at will by the Grantor, and living, which means it is funded and used during the lifetime of the Grantor as opposed to solely at death like a Will.  Generally, the Grantor funds the Living Trust with all of his or her assets, and the Grantor is generally the sole Trustee and the primary beneficiary of the Trust.  Though this all sounds somewhat circular, the Trust provides a very legitimate legal solution:  having the trust own all of your assets means you do not need a legal process to change title to those assets upon your passing.

For states like Florida, the Revocable Living Trust is a common estate planning document simply to avoid the probate process.  There, unlike Georgia, courts require the Personal Representative to post a bond, an inventory of the decedent’s assets must be provided to the court, and various accountings are also required to be filed.  The result is a generally a significantly more expensive and time-consuming probate process than in Georgia.   The Living Trust is not just for Florida residents though.  A Georgia resident owning a vacation condo in Florida will be subject to Florida’s probate process at death.  Thus, not only will the Estate be subject to Georgia probate proceedings, but it will need to file ancillary probate proceedings in Florida too.  This rule is applicable to ownership of assets in any other state, not just Florida, as each individual state has their own laws about transferring title at death.  Having a Living Trust own your out of state assets forecloses the necessity of multiple probate proceedings.

Another significant advantage to the Living Trust based Estate Plan is privacy.  Despite Georgia’s ‘friendly’ probate laws, the original Will must still be filed with the Court and it becomes public record.  This means anyone can review the terms of your Will at death.  In addition, all of your heirs at law are entitled to notice of the filing of the Will and a copy thereof.  For those that prefer their bequests remain private, or who perhaps have made an uneven distribution among their beneficiaries, the Living Trust may be a better choice.  A Living Trust can even help avoid a Will contest where certain heirs may be left out of an inheritance.

Revocable Living Trusts can also be significantly beneficial to a Grantor who becomes incapacitated.  Incapacity proceedings are becoming some of the most common probate court proceedings as people live longer but do not necessarily have all of their faculties.  When you form and fund a Living Trust, you name a successor Trustee to take over management of the Trust assets upon either your death or incapacity, again, entirely skipping the court process for doing so.  This provides a seamless, and immediate, transition of control from you to someone else in the event you can no longer manage your affairs.  And, it is a person of your choosing.  Your Trust document can even be very specific as to who and how you are determined to be incapacitated, thus giving you a great amount of control even where you would no longer have the ability to have such control.

The key to an effective Living Trust is fully funding the trust.  Funding the trust is legally transferring title to all of your assets to the Trustee of the Trust.  There are no tax consequences to such transfer as the trust is revocable, the IRS ‘looks through’ the trust and treats the assets as though they were still yours for income and transfer tax purposes.  Funding is accomplished by changing the title on bank accounts and investment accounts and recording deeds to real property.  Your attorney should go through specific funding instructions with you after a detailed analysis of your assets.

Finally,  a Living Trust will contain all of the testamentary decisions and dispositions of a Will, including trusts as needed for the surviving spouse and descendants, charitable bequests and other gifts you want made upon your passing.

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

Hoffman & Associates Announces its Newest Partner, Kim Hoipkemier

hoffmankimcolorHoffman & Associates is proud to announce that Kim Hoipkemier has become a partner of the firm effective January 1, 2015.  Kim joined H&A in 2011 bringing with her extensive experience in estate planning and representation of high end clients.  She currently specializes in the areas of wills, trusts, estate administration and probate.

“Kim has become engaged in our practice in a relatively short period of time and helps define our compelling brand to clients, vendors and other professionals”, commented Mike Hoffman, founding and managing partner.  “Kim has built a solid foundation in estate planning and her contributions make us a better firm.”

Mrs. Hoipkemier is a magna cum laude undergrad from the University of Georgia and a cum laude graduate from the University of Georgia School of  Law.  She is a member of the Fiduciary Law Section of the State Bar of Georgia and a member of the Wills Clinic through the State Bar of Georgia Young Lawyers Division.

About Hoffman & Associates

Hoffman & Associates is a boutique law firm established in 1991 specializing in estate planning and probate and tax and business law. Expertise in these areas comes from a dedicated staff of both attorneys and CPAs delivering personalized service and sound financial guidance.   Hoffman & Associates prides itself in having a standalone tax practice and attorneys licensed in Georgia, Florida, North Carolina and Tennessee.

Donald Sterling and the L.A. Clippers: There’s Even More to the Story

Kim NewDonald Sterling was the controlling owner of the L.A. Clippers who made racially insensitive comments that went viral earlier this year.  After a hefty fine from the NBA, a lifetime ban, and a threat to force him to sell his controlling interest, Mr. Sterling, at age 80, still refused to sell his ownership interest in the team.  However, it was not the NBA that forced the sale of the team, it was his wife, Rochelle Sterling (“Shelly”), and the interplay of their estate plan that forced the sale and turned this scenario akin to a made-for-TV movie.

The Sterlings, California residents, created a lifetime revocable trust and funded it with all of their assets, including a controlling stake in the Clippers.  Both of the Sterlings were Co-Trustees and primary beneficiaries.  The revocable trust is the core document of an estate plan in many states, including California.  It controls assets during a person’s lifetime and manages the disposition of those assets at death without the need for the probate process.  As Co-Trustees, Donald and Shelly made decisions jointly with regard to their assets.

About the same time as the racial comments came to light, Shelly had Donald evaluated by two doctors for a determination of his mental capacity.  The doctors concluded Donald indeed suffered from diminished cognitive ability and was exhibiting signs of Alzheimer’s disease.  Pursuant to the Sterling’s revocable trust agreement, Donald could no longer serve as Co-Trustee with such diminished capacity, leaving Shelly as the sole Trustee with sole power to administer the trust’s assets.

Shelly negotiated the sale of the Clippers to former Microsoft CEO Steve Ballmer for $2 billion, despite the protests from Donald.  Donald sued to enjoin the sale and sought damages from Shelly and the NBA.  He argued that he had the proper capacity to remain Trustee, and that Shelly failed to follow the proper protocol in his medical evaluation; therefore, she was not sole Trustee and did not have authority to sell the Clippers

The dispute went to Probate Court in California where the Judge heard arguments as to whether Donald was properly removed as Co-Trustee based on his mental capacity and whether Shelly had authority to sell the Clippers under the terms of the Trust agreement.  In late July, the Probate Court Judge ruled entirely in favor of Shelly and held the sale of the Clippers could proceed even if Donald appealed the ruling.  The Judge dismissed the claim that the capacity argument was merely a scheme by Shelly to sell the Clippers.

This case received a lot of attention for Donald Sterling’s racially charged comments, but the case also deserves a lot of attention for highlighting the issues of incapacity and estate planning.  As the population ages, reports of dementia, Alzheimer’s disease and other forms of diminished mental capacity are on the rise.  Planning for someone else to manage your personal and financial affairs in the event of such illnesses or accident is a crucial part of an effective estate plan.  Who you choose to act on your behalf and how it is determined that you are “incapacitated” are equally important.  Although the events surrounding the sale of the Clippers were not as Donald and Shelly likely anticipated when creating their Revocable Trust, the Trust functioned exactly how it was intended.  Upon the death or incapacity of either Donald or Shelly, the survivor or remaining Trustee would serve as sole Trustee and continue to manage their joint assets, no court intervention needed.

A General Durable Power of Attorney and a Healthcare Power of Attorney or Directive are two key documents that plan for incapacity.  Without these in place, a time-consuming and costly court action will be required to name a Guardian or Conservator to manage the affairs of someone who is incapacitated.

Talk to your estate planning attorney about getting these documents in place for your family.  If you already have Powers of Attorney, give them a quick review, and make sure they still express your wishes and appropriately plan for the determination of incapacity.

 

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Even Young People Need Estate Planning

Kim 1“If I don’t have any assets, and I would want everything to go back to my parents anyway, why in the world do I need a Will at 20?”

As they pack their bags and stock up on under-bed boxes for college, the last thing on your college-age kids’ mind is an estate plan.  Even as they don the graduation cap and gown, an estate plan doesn’t even make a blip on their radar.  Perhaps the checklist for adulthood is replete with tasks more important than a Will, but a simple, even bare-bones estate plan should absolutely make the list.

Here’s a possible scenario:  your adult child has an accident and is hospitalized while in college.  You arrive at the hospital only to discover you are not entitled to see his medical records.  If he is unconscious and cannot give you verbal authorization, you’re in the dark, and may not even be able to participate in his health care decisions. Most parents are shocked when they hear this.

The good news is Health Care Powers of Attorney are simple, straightforward and standardized forms giving you the peace of mind you need to make informed decisions based on access to their full medical records.  Click on the following link to access the Georgia Advanced Directive for Healthcare.

After you get the Healthcare Directive in place, consider talking to your child about a Will.  The significance of such a document is often overlooked by a young adult.  Without a Will, a person’s assets will pass according to the State’s instruction.  While this may not be terrible, a parent who has transferred assets to their children may not want those assets back if such transfers were part of a larger estate plan.  In addition, young adults may have more financial assets than they think.  Custodial accounts constitute a significant sum of assets held by young adults.  Finally, consider a digital assets power in both a Will and a General Durable Power of Attorney for your young adults.  Vast amounts of information and access to accounts and other assets are now stored in the cloud.  Getting access to these digital files can be more difficult than you think without an explicit grant of power from your child in a written document.

When your kids come home for Thanksgiving with laundry that weighs more than your turkey dinner, have the conversation about getting these simple documents in place.  We are here to answer any questions you, or your young adult, may have.

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

UNCLAIMED PROPERTY

State governments in the U.S. have between $35 and $400 billion dollars of unclaimed assets sitting in state funds awaiting retrieval.  A non-profit organization called the National Association of Unclaimed Property Administrators (“NAUPA”) has members from every state in the U.S. helping oversee unclaimed property. The databases that house the unclaimed property records are maintained by each individual state, not by NAUPA.  Most state databases are free to search.

Unclaimed property is defined as “accounts in financial institutions and companies, that have had no activity generated or contact with the owner for one year or longer” (The time period is set by each state).  There is currently no statute of limitations on unclaimed property.

 There are many different reasons why property is turned over to the state and becomes unclaimed.  A few of the most common are:

  • you move without notifying every business contact (i.e. utility company);
  • you forget about accounts you may still have open;
  • you may have checks that were lost in the mail or put in a drawer and forgotten about;
  • you leave a job and don’t collect your final paycheck
  • a loved one passes away and there is no process for contacting heirs.

 

If you believe you may have unclaimed property, you can visit NAUPA’s site www.unclaimed.org or the national database www.missingmoney.com, which will link you to the individual state’s unclaimed property database.  If you search Georgia, you can go directly to the Georgia Department of Revenue’s site www.etax.dor.ga.gov. Type in your name – the name you had when you lived in that state.  If you find your name you can initiate a claim on the website.  You should allow at least 120 days for the initial inquiry to be processed.  If the state believes the property could be yours, it will send you another form and request documentation to establish ownership/identity as the rightful owner.

Legitimate proof of your right to unclaimed property includes proof of address and proof of name at the time the property was originally left unclaimed.  If you are claiming property from someone who is deceased, you will need to provide documentation that shows your relationship and right to claim.

A huge unclaimed account exists in New York.  Last year, a Holocaust survivor died at age 97 with no Will and no heirs to his estate.  He died leaving an estate worth an estimated $40 million.  If no heirs are found, his estate will go to the state of New York.  This is yet one more reason why everyone needs a Will and should advise their loved ones as to the location of important papers.

If you would like more information or need assistance in searching and possibly claiming your property, please contact us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Legal Matters in Starting Your Business

Mike_Hoffman_17Join Mike Hoffman in this 74 minute audio as he hosts the 11th session of the 24 hour MBA in discussing how to get your business off the ground.  There are many different legal options in starting a business, and in this audio session, you will understand the best way to start your business and keep it successful for future generations.  24hrmba-11.mp3

 

1 2